Precious metals end lower

Gold and silver prices decline as crude slips by more than $2 and dollar strengthens

Precious metals ended lower for the second consecutive day as both gold and silver prices dropped today, Monday, 07 January, 2008. Gold and silver prices fell today after oil prices slipped and dollar strengthened against its rivals.

Gold generally moves in the opposite direction of the U.S. currency. Gold, as a dollar-denominated commodity, suffers from dollar strength. Gold gained 31% in FY 2007 while oil jumped 57% and the dollar fell 9.5% against the euro.

Comex Gold for February delivery today fell $3.7 (0.4%) to close at $862 an ounce on the New York Mercantile Exchange. Last week, gold prices gained $23/ounce (2.7%).

Prices touched $872 during intraday trading on 3 January, 2008 and finally had closed at $869.3/ounce. That closing price was the highest price after a record $873 that gold hit on 21 January, 1980.

Comex Silver futures for March delivery today fell 17.2 cents (1.1%) to $15.29 an ounce. Prices touched 26 year high on 7 November, 2007, after reaching $16.275. Silver has gained 2.5% in 2008. The metal had climbed 15.5% in FY 2007. The metal also has gained for seven straight years.

Gold witnessed the greatest annual gain in twenty eight years by gaining $200/ounce (31%) in FY 2007. In 2006, silver had jumped 46% while gold gained 23%.

In the currency market today, the dollar rose against most major counterparts. The dollar index, which tracks the performance of the greenback against a basket of other currencies, gained 0.6% to 76.210

In the energy market today crude oil fell more than $2 a barrel in New York after renewed concerns about recession hinted that a a recession would curb energy demand. In FY 2007, crude prices had gained $57%.

Gold has traditionally been used as a safe-haven asset against rising inflation. Investor sentiments are boosted by the fact that gold and silver are alternate sources of good investment in the face of declining dollar and rising energy prices. Rising crude increases inflationary pressures and vice versa. On the other hand strong dollar reduces the appeal of the metal as alternate source of investment.

Gold had climbed 31% in FY 2007 as lower interest rates had sent the dollar tumbling, and crude-oil prices rose to a record.

The Fed reduced federal funds rate three times in FY 2007. The current interest rate stands at 4.5%. The Fed also lowered its discount rate twice, the interest it charges on direct loans it makes to banks, and currently it stands at 4.75%. With these interest rate cuts, dollar has been tumbling down. Market anticipates that there will be more rate cut in the coming year.

Gold is expected to rally to all-time highs in the first quarter in FY 2008 as higher oil prices and a weaker dollar will continue to boost demand. Market expects another phase o interest rate cut in the end of the month.